EIA: Brent and WTI crude oil prices expected to reach US$50/bbl

The US Energy Information Administration (US EIA) now forecasts Brent crude oil spot prices to average US$51/bbl in 2017 and US$52/bbl in 2018. West Texas Intermediate (WTI) crude oil prices are expected to be US$2/bbl lower than Brent prices in 2017 and 2018. Daily and monthly average prices could vary significantly from this forecast because global economic developments and geopolitical events in the coming months have the potential to push oil prices higher or lower than the current Short-Term Energy Outlook (STEO) price forecast.

For example, EIA's forecast for the average WTI price in October 2017 is US$48/b, while the options markets indicate an expected range of WTI prices from US$36/bbl to US$60/bbl (at the 95% confidence interval) based on the recent prices of futures and options contracts for October 2017 delivery.

US crude oil production patterns in the Lower 48 onshore basins continue to vary by region, and quickly evolving trends in this sector can affect both current prices and expectations for future prices. However, lasting price movements could be limited over the next year because some US tight oil producers have used financial instruments to guarantee a price above US$50/bbl for their expected production.

Crude oil prices reached their lowest year-to-date levels in late June. Prices fell after EIA reported builds in total US crude oil and petroleum products inventories that were above the five-year average during the weeks ending June 2 and June 9. The build in total US petroleum inventories for the week ending June 2 was the largest for any week since 2008. Rising Libyan and Nigerian production in June also put downward pressure on prices.

EIA forecasts total US crude oil production to average 9.3 million bpd in 2017, up 0.5 million bpd from 2016. In 2018, crude oil production is forecast to rise to an average of 9.9 million bpd. If achieved, 2018 production would be the highest annual average on record, surpassing the previous record of 9.6 million bpd set in 1970. The 2018 forecast is 0.1 million bpd lower than in last month’s STEO because of lower forecast crude oil prices in late 2017 and in 2018.

Forecast Organization of the Petroleum Exporting Countries (OPEC) crude oil production is expected to fall by 0.2 million bpd in 2017, as OPEC members have limited production based on their November 2016 agreement. In May 2017, this agreement was extended through the first quarter of 2018. Uncertainty remains regarding the duration of and adherence to the current OPEC production cuts, which could influence prices in either direction. EIA’s forecast assumes a further extension of the agreement in 2018 but with lesser compliance. Without a further extension of the OPEC agreement, EIA would expect larger inventory builds and lower prices in 2018 than are included in this forecast.

Global liquids consumption growth is expected to be 1.5 million bpd in 2017 and 1.6 million bpd in 2018. In both years, most of this growth (about 1.2 million bpd annually) comes from countries outside of the Organization for Economic Cooperation and Development (OECD), with China and India expected to be the largest contributors to non-OECD liquid fuels consumption growth. Global oil inventories are forecast to be relatively unchanged in 2H17 before returning to average inventory builds of 0.2 million bpd in 2018.